The SEC thinks Guinness brewer Diageo may be spiking its results

The Securities and Exchanges Commissions is investigating the company behind Guinness, Johnnie Walker whisky and Smirnoff vodka, on suspicion that it may have inflated its results by shipping excess inventory to its North American distributors, according to The Wall Street Journal.

Diageo DGEAF confirmed it has “received an inquiry from the SEC regarding its distribution in the United States” and said it’s “working to respond fully to the SEC’s request for information in this matter.”

The news comes less than a month after Diageo said its Larry Schwartz, who has run its North American business for the last three years, will step down at the end of the year. Diageo is the biggest liquor company in the U.S. and North America is its most important region worldwide, accounting for a third of sales and over 40% of operating income.

The business has shown signs of being under pressure in recent months, posting only flat organic sales in the second half of last year.

The WSJ said the SEC suspected the company of booking undue amounts of sales as it shipped products to distributors, rather than recording sales to end customers (known as ‘depletions’), a practice which could overstate actual demand for its products–albeit one allowed under U.S. law.

Diageo CEO Ivan Menezes had already signaled in an analyst call in January that the company was moving away from that practice to focus on depletions, according to the WSJ.

Diageo’s depositary receipts had initially fallen by 5% in late trading Thursday in response to the report, but its London-listed shares were less affected Friday, falling only 1.3%.

Pearson is selling The Financial Times to Japan’s Nikkei for $1.3 billion

Europe’s most influential business newspaper, the Financial Times, is being sold by its owner Pearson Plc PSO to Japan’s Nikkei for 844 million pounds ($1.31 billion), Pearson confirmed Thursday.

The announcement ends hours of back and forth speculation over the identity of the buyer after Reuters reported that the U.K.-based publisher was on the verge of selling its most prestigious title to “a global, digital news organization.”

Speculation had focused earlier on German media giant Axel Springer SE and financial information provider Bloomberg LLP, whose founder Michael Bloomberg has long been on record about being one of its admirers. The FT itself reported Thursday that talks to sell the title to Springer had reached an advanced stage, but Springer issued the curtest of press releases denying it was the buyer.

Pearson’s previous CEO Marjorie Scardino had for many years resisted pressure to sell the paper. However, shifting priorities at the group’s management, along with an improvement in the fortunes of the paper’s digital edition, changed that equation. Total circulation across print and digital rose more than 30% over the last five years to 737,000, with digital circulation growing to represent 70% of the total, from 24%, and mobile driving almost half of all traffic. Content and services now account for the majority of revenues. (Read more on why here).

“Pearson has been a proud proprietor of the FT for nearly 60 years. But we’ve reached an inflection point in media, driven by the explosive growth of mobile and social,” Pearson’s CEO John Fallon said in a statement. “In this new environment, the best way to ensure the FT’s journalistic and commercial success is for it to be part of a global, digital news company.”

As a result, Pearson will now be “100% focused” on its educational publishing business.

“The pace of disruptive change in new technology – in particular, the explosive growth of mobile and social media – poses a direct challenge to how the FT produces and sells its journalism,” Fallon wrote in a separate blog post.

Nikkei’s CEO Tsuneo Kita stressed that the company’s own traditions, as publisher of Japan’s leading business daily, Nihon Keizai Shinbun would guarantee journalistic continuity.

“Our motto of providing high-quality reporting on economic and other news, while maintaining fairness and impartiality, is very close to that of the FT.

In addition to the familiar salmon-pink daily, Nikkei is also FT Labs, FTChinese, the Confidentials and Financial Publishing (including The Banker, Investors Chronicle, MandateWire, Money-Media and Medley Global Advisors). Together, the titles had annual revenue of 334 million pounds and 24 million pounds in operating income in 2014.

However, Pearson is holding to its 50% stake in The Economist. It’s also holding on to the prime London real estate on the south bank of the Thames where the FT is currently based.

Brits are going wild for “quite impressive” Apple Pay

Apple Pay launched in the U.K. Tuesday, the first time that Apple Inc.’s AAPL much-touted mobile payments system has been seen outside the U.S..

Now, you might be thinking that the curmudgeonly, Olde Worlde Brits might not go for all the hype and ballyhoo that attends the typical Apple launch. But you’d be mistaken. Albion was positively submerged in a wave of hyperbole:

After the sheer thrill of the novelty, the next biggest pleasure the launch afforded the average Brit was the opportunity to indulge his favorite pastime: moaning about his bank. Barclays plc BCS, which has its own rival contactless payment system, Lloyds Banking Group plc LYG and HSBC plc HSBC, which ducked out of being one of Apple’s ‘launch partners’ at short notice, were called out in no uncertain terms.

…although it wasn’t clear how many of the negative tweets were about the banks, rather than the app itself.

One of the reasons for that might be that Near Field Communication is already a pretty well-established technology in the U.K.: over 100 million pounds ($160 million) a month is spent through contactless payments, up threefold over a year ago, with an average of some 370 transactions a minute, according to the U.K. Cards Association.

Apple isn’t even the first smartphone maker to offer the service: mobile network operator EE’s Cash on Tap service, which works with Android phones made by Samsung, Sony and HTC, is already accepted at 300,000 points across the country (Apple boasted 250,000 today).

Barclays fires CEO to speed up strategic shift

British lender Barclays Plc BCS has ousted Chief Executive Antony Jenkins after three years in the post, saying on Wednesday it had decided new blood would help accelerate strategic change at the bank and boost shareholder returns.

The surprise move comes weeks after John McFarlane took over as chairman of the bank and signalled his intention to speed up its turnaround plan. McFarlane is to take over executive duties until a permanent successor is appointed.

Barclays said Jenkins, who had been promoted from head of retail at Barclays following the departure of Bob Diamond as the bank sought to scale back its investment banking activities, would receive a year’s salary of 1.1 million pounds ($1.7 million) plus 950,000 pounds worth of shares, a pension allowance of 363,000 pounds and other benefits.

He’ll also remain eligible for a pro-rata performance bonus for the current year.

McFarlane, appointed from insurer Aviva having overseen a radical turnaround there, faces a host of challenges as the British bank sector grapples with regulatory pressures such as a demand to separate domestic retail banking operations from riskier investment banking operations.

The decision to axe the CEO follows a period of lackluster results and uncertainty about the bank’s future structure.

“This announcement was not something that we have expected, but given John McFarlane’s history as a ‘hands-on’ chairman, it is perhaps not a big surprise,” said analysts at brokerage Shore Capital in a note which repeated a “buy” rating on the stock.

“If this move does indeed act as a catalyst for an accelerated improvement in Barclays’ financial performance, then this can only be a good thing,” the note added.

While lauding Jenkins’ role in steering the bank through a period of rapid change, Deputy Chairman Michael Rake said the board had decided Jenkins did not have the blend of skills required to take the company forward.

“We are leaving value on the table and a new approach is required. As a group, if we aspire to bring shareholder returns forward, we need to be much more focused on what is attractive, what we are good at, and where we are good at it,” he said in a statement.

“We therefore need to improve revenue, costs and capital performance. We also need to become more externally focused and deal with the internal bureaucracy by becoming leaner and more agile,” Rake added.

In a statement Jenkins said: “It is easy to forget just how bad things were three years ago both for our industry and even more so for us. I am very proud of the significant progress we have made since then.”

London’s Heathrow Airport is set for a massive expansion…maybe

London’s Heathrow Airport, which receives more international flights from the U.S. than any other airport in the world, is about to get a major expansion, after a government-backed commission recommended building a new runway.

The expansion will boost capacity at Europe’s most important hub by over 40% to 740,000 flights a year, offering (in the long term) the possibility of much more competition–and consequently lower fares–on transatlantic flights. It will be one of the biggest infrastructure projects in the world in the next few years, expected to cost 17.6 billion pounds ($28 billion), with a further 5 billion pounds in new road and rail links.

The Commission’s report concludes a long and bitterly-contested review that pitted rival airports, residents, politicians and environmentalists against each other. On the one side, business has argued strenuously for investment to stop the U.K. being overtaken by up-and-coming hubs such as Amsterdam. Residents and environmentalists argue that Heathrow is already violating most acceptable norms on emissions and noise pollution.

Commission chairman Sir Howard Davies said expanding Heathrow “presents the strongest case and offers the greatest strategic and economic benefits–providing around 40 new destinations from the airport and more than 70,000 new jobs by 2050.

But the Commission’s recommendation is only that–a recommendation. Although it has expressed the clearest possible preference for Heathrow over Gatwick, a largely short-haul airport south of London, politics may yet force the government into a different decision.

Prime Minister David Cameron had promised not to expand Heathrow in the run-up to the 2010 general election, anxious to win more seats in electoral districts in London, and a u-turn will give huge amounts of political ammunition to other parties. A number of senior figures in the Conservative government had backed rival schemes, notably Boris Johnson, the outgoing mayor of London and Zac Goldsmith, the man most likely to be the Tories’ next candidate for London mayor. Channel 4 News reported a senior Tory as saying that Davies had dumped “a pile of steaming poo on Cameron’s desk.”

The PM does, however, at least have the consolation that he himself isn’t standing for re-election, and that his party has just won a fresh five-year mandate nationwide.

Queen Elizabeth’s paycheck is under review to be cut

Eight hundred years since the English first put a leash on their sovereign’s spending habits, they’re about to tighten the squeeze on Queen Elizabeth.

The daily The Independent reports Monday that the new government is to review current legislation that guarantees the Royal Household a 15% cut in the profits from the Crown Estate, a vast property portfolio that owns stuff from London’s swanky Regent Street to Ascot Racecourse.

That’s because the profits on the Estate have risen far more sharply in recent years than forecast at the time the current arrangements were drawn up in 2011.

Under British law, the Crown Estate pays all its profit out to the Treasury, which then passes 15% back to the Royal Household. There’s also a clause that states that the Treasury will never cut the Queen’s budget in absolute terms. For the current financial year, it’s just over $60 million. That money is supposed to cover both the Queen’s private expenses and her official duties.

But because the Estate’s profit has risen by some 29% in the last three years, the current formula is giving the Queen a big pay raise–just as a new government is about to take an axe to the rest of the country’s public spending, starting with welfare and (although they won’t admit it yet) most probably ending with the politically sacrosanct National Health Service. That’s a recipe for a PR disaster, especially for a Conservative government that is in any case habitually accused of favoring the upper classes (Prime Minister David Cameron himself is descended from an illegitimate child of King William IV–had he lived 500 years ago, most people would have argued he had a better claim to the throne than Elizabeth).

The Independent quoted a spokesman for Buckingham Palace as saying: “A review will take place after April 2016 to ensure that the grant provides the resources needed to support the Queen’s official duties.”

The Royal Household’s budget has always been a pleasingly easy target for the headline writers and satirists. Last week’s ceremonial opening of parliament, in which the Queen, as usual, read out the government’s agenda for the next five years, triggered the usual gags about “Woman In 10-Million-Pound Hat Calls For Austerity.”

But the ceremonial pomp, like much else besides in post-crisis Britain, is run on an uncomfortably thin margin. Staff at Windsor Castle threatened industrial action last year, fed up with years of meager pay increases. And a parliamentary report found that Buckingham Palace’s 60 year-old boilers were leaking so badly that they threatened many of the priceless works of arts hanging in the floors below them.

With a painful irony, the review is coming only weeks before the eight hundredth anniversary of the signing of Magna Carta in 1215, the first successful attempt by the English to limit the crown’s sovereignty. Her Maj would likely argue that bringing the Palace’s heating system into the 21st century isn’t quite as egregious as King John’s robbing the nobility and merchant classes to fund disastrous wars in France. Still, as the staff at Windsor (and soon every ministerial spending head) will tell you, it’s all relative.

Ryanair is reaping the reward for being nicer to its customers

Europe’s favorite–well, most-used–airline continues to go from strength to strength, raising its profit forecast for the year and downplaying a looming price war.

Ireland-based Ryanair Plc RYAOFsaid Tuesday it now expects to turn a profit of around 955 million euros ($1.04 billion) in the year to March 2016, 10% more than in fiscal 2015, on a strong response from business and family customers to its efforts to be nicer to them.

Ryanair’s traffic rose 11% in its fiscal 2015 year, as its load factor (the proportion of seats sold relative to total seats offered) rose to 88% from 83%. The company expects that to rise to 90% this year. It said much of the improvement was down to its new Business Plus and Family Extra services, which were introduced to take some of the pain out of its notoriously poor customer experience, which combined a minimum of frills with a maximum of add-on charges.

The company had warned that it might be vulnerable to a price war from its competitors after it locked in its fuel costs for the current year before the collapse in oil prices at the end of 2014. That means that other airlines who either hedged later or didn’t hedge at all are paying much less for a key input.

Ryanair has done a lot better at hedging the cost of new aircraft, generally priced in dollars, having locked in dollar/euro rates for the next three years well above what the market is expecting.

Aside from its financial report, the Irish company, which has made a habit of getting under the skin of European authorities with accusations that they protect vested interests, took a fresh swing at the U.K.’s antitrust regulator Tuesday for its “manifestly erroneous” pressure on the company to cut its 29.8% stake in Aer Lingus, Ireland’s legacy flag carrier.

The Competition and Markets Authority is afraid of Ryanair monopolizing routes between Ireland and the U.K.. International Airlines Group, the parent company of British Airways, has been trying to buy Aer Lingus since last year, albeit less for the sake of making money in Ireland, than in increasing its dominance of London’s overcrowded Heathrow airport by snapping up its 23 landing slots.

The CMA had argued that no other company would bid for Aer Lingus as long as Ryanair held such a large stake, a view subsequently disproved by IAG’s approach.

Never one to refuse a tilt at windmills, Ryanair inevitably has a suggestion on how the U.K. should solve its politically-explosive problem with increasing airport capacity around London: simply let market forces decide.

Given the level of noise and air pollution from Heathrow and its two smaller rivals at Gatwick and Stansted, and given the issue’s impact on dozens of tightly-fought electoral districts in and around the capital, the chances of that happening (even under a notionally pro-business Conservative government) is pretty close to zero.

Big Tobacco is suing the U.K. over plain packaging law

Two of the world’s largest tobacco companies have filed suit against the British government in an effort to overturn new laws aimed at stamping out the use of cigarettes.

Philip Morris International PM, which owns the rights to brands such as Marlboro, said the new legislation on plain packaging illegally deprived it of its trademarks without compensation, by banning the use of branding and insisting that health warnings take up over half of the surface of the pack.

“The UK government rushed out the regulations, with many serious questions left unanswered,” PMI’s General Counsel Marc Firestone said in a statement. “A wholesale ban on branding distorts the market and treats consumers as if they’re not capable of making their own decisions.”

The industry also argues that plain packaging encourages fakes and smuggling.

PMI was joined as plaintiff by British American Tobacco Plc BATMF. The two are expected to seek some 11 billion pounds in damages, according the newspaper The Scotsman.

The law was approved by Parliament earlier this year and goes into effect in 2016. It comes of top of new restrictions on retailers that came into effect last month, stopping them from openly displaying cigarettes on sale.

On the street, the people who sell PMI’s products are skeptical of their suppliers’ chances. Many have already come to terms with the fact that the cigarette business is, for want of a better word, dying, and have moved on.

“You know who’s going to win,” says Mukesh, a newsagent and tobacconist in Southwark in south London. “It’s going to be the government.”

Mukesh reckons his sales of cigarettes have fallen by between 20%-30% in the month since he installed a new cabinet that complies, in complete and deadening monotony, with the new rules.

Big Tobacco’s woes in Europe don’t end there. Under proposed changes to the European Union’s directive on tobacco product use, it may soon become illegal to sell smaller packs of less than 20 cigarettes, a move intended to restrict cheap access to cigarettes and cut purchases by low-income or impulse buyers. Mukesh expects 80% of his most popular cigarette products will be outlawed a year from now.

PMI is already waging a similar campaign against plain packaging laws in Australia, through the unorthodox tactic of using a clause in a trade treaty with Hong Kong that guarantees the rights of investors in the country. Most controversially, it is paying other governments to sue Uruguay at the World Trade Organization in an effort to strike down its law requiring graphic health warnings on packs.

What’s that in Europe’s mobile sector? Can it be…growth?

Britain’s Vodafone Plc VOD posted a rise in quarterly sales for the first time in nearly three years on Tuesday in the clearest sign yet that Europe’s mobile market is edging towards recovery.

The world’s second-largest mobile operator has been hit hard by the constraints on consumer spending in its big European markets, fierce competition in India and by regulator-imposed price cuts around the world.

That follows updates from the likes of Telefonica SA TEFOF and Deutsche Telekom AG DTEGY which also showed signs of gradual, if slow, improvement in Europe.

Vodafone, which has 446 million mobile customers in countries ranging from Albania to Ireland, Qatar, India, South Africa and New Zealand, posted a rise in fourth-quarter organic service revenue, which strips out one-off costs such as handsets, of 0.1%. That’s not much but it ended 10 straight quarters of declines.

The result was helped by 6% growth from the Africa, Middle East and Asia-Pacific division, while the decline in European revenue and slowed to 2.4% from 2.7% in the previous quarter.

“We have seen increasing signs of stabilization in many of our European markets, supported by improvements in our commercial execution and very strong demand for data,” Chief Executive Vittorio Colao said.

Shares in the group slipped 2% percent in early trading, pulling back from a 9% rise in just over two months in anticipation of an upturn.

“For some time now, Vodafone has been trying to shake off the shackles of being regarded as a company which is “ex-growth” and today’s annual reflection points toward some future promise,” said Hargreaves Lansdown Stockbrokers.

Analysts believe that demand for the more expensive fixed-line fiber services and superfast 4G mobile connections will spur a return to growth from 2016.

“We have significant opportunities ahead of us, with only 13% of our European mobile customers using 4G,” it said.

The one weak spot in the results was Germany, where it was hit by stiff competition. Vodafone Germany CEO Jens Schulte-Bockum will stand down during the 2015-16 financial year.

One other longer-term concern for Vodafone investors has been the thought that it could seek to upgrade its networks in one go by buying Europe’s biggest cable operator, Liberty Global.

Analysts at Jefferies said they would like to hear the company predict strengthening revenue trends through the year.

“We view this as key to reassuring investors on Project Spring delivery and calming fears that Vodafone may need to reinforce itself with Liberty in due course,” they said.

Vodafone forecast a range for 2015-16 core earnings of 11.5 billion pounds ($18.0 billion) to 12 billion pounds, implying core organic earnings growth of between 1%-5%. It also said it wanted to raise its dividend every year.

EU probe isn’t stopping Gazprom’s European expansion plan

Russia’s national gas champion OAO Gazprom took its biggest bite into the U.K. market to date Tuesday, signing a deal with the country’s biggest utility that will give it access to some 15 million household and business customers.

The state-controlled giant, which last month became the subject of an official European Union antitrust probe, agreed to extend a 2012 agreement with Centrica (which sells through the British Gas brand), raising annual supplies from just over 70 billion cubic feet a year to 146 bcf.

The deal, which runs through 2021, means that Gazprom will be the source of over 5% of annual U.K. gas demand, even before its trading arrangements with other U.K. utilities are taken into account. Supplies will be managed from Gazprom’s global trading portfolio, rather than sourced to specific fields and pipelines in Russia, however,

The deal illustrates the changing face of the European energy market. The U.K. for a long time produced more than enough gas in the North Sea to meet its own needs, but now has to import over half of the 2.56 trillion cubic feet a year that it consumes as those fields deplete. Gazprom, which supplies over a quarter of Europe’s gas, was generally unable to penetrate it.

With the U.K., like the rest of Europe, highly reluctant to allow shale gas to replace the North Sea resources, there are few alternatives, at least in the short term, to Gazprom’s (Centrica is already leaning heavily on the most obvious one, committing itself in a separate deal Tuesday to take 256 bcf a year from the Norwegian company Statoil ASA STOHF).

But by the same token, Gazprom needs new European customers just as badly, having lost one of its biggest and most profitable export markets, Ukraine, to a bitterly politicized dispute. The U.K. is one of the few markets in Europe where it can increase its presence without becoming conspicuously dominant.